November 14, 2009

Over the past few years, a cadre of “independent” analysts have set up shop and started to speak frankly about the enterprise application vendors, in their blogs and tweets. You know who I’m talking about: Vinnie, of course, and Dennis, and the Enterprise Irregulars, and Brian , and many, many others. These people were really good analysts to begin with–I’ve known them for years–and they have found their more-or-less independent status freeing, so they write the best stuff that is out there.

So if they’ve got a better mousetrap, why is it that the big guys, Forrester and Gartner, just seem to roll on and on, happily enough? Why haven’t they folded, the way the portable CD player did when the iPod came out? In the free market, after all, shouldn’t consumers pick the best quality at the lowest prices?

I got an interesting answer, yesterday, when I attended a talk at Harvard by Marc Flandreau, who is at the Graduate Institute of Development and International Studies, Geneva. Marc is an expert on bad-mouthing, or as we like to say in English, “blackmail.” And he has a fascinating historical explanation of how pay-to-play can emerge in information markets.

Marc’s focus is the wild and woolly bond market in Paris pre-World War I, a market that was deeply affected by the emergence of a free (or at least libel-free) press in France, post 1880. At the time, it was so easy to start and print a newspaper cheaply that a new kind of blackmail emerged. It was, essentially, “Pay us, or we’ll say bad things about you.” The very relaxed libel laws at this time made this a genuine threat, and people (Marc shows) really did make money doing it.

In the financial markets, the threat took the form, “Mr. Russian Government, pay us, or we’ll publish an article saying that you’re losing the then-active Russo-Japanese war.” And, as it turns out, the Russian Government paid up. The records, which were published in the 1930s, show that the government’s expenditure on publicité went up by a factor of two or more during that period, over what would “normally” be expected.

The interesting thing, though, is where the money went. Essentially, a set of what we would now call unscrupulous PR men (possibly, a redundancy, I admit) who took the blackmail money and distributed it among the press.

Now, here is the rub. Most of the money apparently went to the most reputable, most stable, and most expensive financial journals, not to the blackmailers. What these people tried to do with the bribe money was to make blackmail expensive, by “supporting” an alternate, established, reputable forum, which people would look to for authoritative information, and the existence of this forum brought the threat of blackmail from the cheap-sheet vendors down to acceptable levels.

Flandreau demonstrates fairly convincingly that while some money did go to throw-away (sometimes one-issue) newspapers, most of the money went to those journals and was a significant source of income for them.

“So if I may paraphrase,” a Harvard professor said, after hearing this, “The National Enquirer is one of the things that keeps The New York Times alive.” Marc replied in the affirmative.

Marc’s broad conclusion is that a pay-to-play industry will emerge whenever there is a significant threat from “badmouthing.” (He cites Moody’s as a modern-day example of the same phenomenon.) In all these cases (I think movie stars of the 1920s are another example), the best strategy for coping with badmouthing is to support cooperative, but reputable mouthpieces who will then be a permanent counter to whatever bad things are said by the smaller, less reputable people. In his analysis, the accuracy of what these smaller, less reputable people say is irrelevant; it could be true, it could be false. What matters is that you can exert some control over the best people in the industry.

Anybody who has ever taken a PR class already knows this, of course. But what Flandreau contributes are two simple, but odd facts. The premiums are in fact very large, and MOST of the money goes to the larger, more reputable firms.

So what does this mean for Dennis and Vinnie and Brian and Michael Krigsman and Helmuth Gümbel? Well, pretty much it means that their efforts are enriching Gartner and Forrester far more than it enriches them.

Dennis says in a recent tweet, “Pay to play doesn’t cut it.” Sorry Dennis, in this case you’re just wrong. If Marc is right (and I have no reason to think he isn’t), what you’re really doing is supporting the pay-to-play industry.

November 2, 2009

The German Financial Times today took a bead on Léo Apotheker, SAP’s CEO, saying that on his watch, SAP had lost touch with its roots [verlorene Wurzeln]. No longer, as in the days of Hasso Plattner and Dietmar Hopp, is SAP customer-focused, the article says, and as a consequence, customers no longer think the software is worth the money. (The article cites the current customer unhappiness about increased maintenance prices as evidence for this.)

Helmuth Gümbel, no stranger to this blog, is cited frequently in the article; clearly, he was persuasive about the current state of affairs between SAP and its customers. Clearly, too, one disagrees with Helmuth at one’s peril.

Still, I wonder whether it’s really fair to hang all these problems on Léo. Take the infinitely hashed-over introduction and semi-withdrawal of Business By Design. Léo tends to get the blame for this because he was there on the podium claiming that SAP would get $1 billion in revenue from this product by, what is it, next year? But he had nothing to do with the original product. He was working in sales when Peter Zencke was put in charge of Project Vienna, and he was still in sales when Nimish Mehta’s team was developing T-Rex (a great product, no question), and he was still in sales when Hasso was insisting that T-Rex be incorporated into Business by Design, and so on.

Certainly, it was injudicious for him to promise that his organization could sell the heck out of a product that wasn’t ready for prime time. But why does this make him responsible for SAP’s lost roots? If anybody lost their roots, it was the development organization, which somehow or other couldn’t build the product it thought it would be able to build.

Don’t blame Léo for problems that were not of his making.

Now, I have my own issues with Léo, as my readers know. But frankly, when he came in, I think he was right about SAP. Too much time and money was being spent on stuff that wasn’t what the customer needed (or wouldn’t sell), and this had to stop. Hence the acquisition of Business Objects, the downsizing, the restructuring in the development organization. All of these things deserve at least one cheer, and I hereby give it. Hip, hip, hoorah.

Where I criticize Léo–and I’ve told him this to his face–is in his view of SAP’s role vis a vis the customer. He thinks what SAP has always thunk, that it’s up to SAP to make the best possible tools and it’s up to the customer (aided by the SI community) to figure out what to do with them. I think this view is wrong; SAP has to take more responsibility for making sure that the stuff works.

Ten years ago, when the heroes of the FT Deutschland article were fully in charge of the SAP business, I agree, SAP didn’t need to do that. SAP knew about businesses and about software, and they could figure out what they should do next without fretting about the problems customers were then having. (Believe me, there were a lot of them.) Today, though, with so much development time and development effort squandered, they can no longer believe that they can just build the right tools and count on the customers to get the benefit. Instead, they need to find out what went wrong with the tools they’ve been building and what needs to be done in the future. And the only way they can do that is to figure out EXACTLY what is preventing customers from getting the value they think they ought to get.

You can see why this problem is so important if you look at the SAP Solution Manager. This product ought to be what justifies the maintenance price increase. But as Dennis Howlett and Helmuth himself have both said, the product itself does not yet do what SAP needs it to do. If SAP really wants to justify this price increase, it needs to figure out why customers aren’t getting the value that SAP needs them to get. And they need to do it fast.

This is not easy; indeed, when I said this to Hasso late one night at an analyst party, he said, roughly, “We don’t know how to do that.” But let me just say, of all the executives I know at SAP, the one who is most likely to figure it out is Léo.

If he can figure it out, he will be able to get his customer base back again; indeed, I think they’ll be cheering, and when we’re convinced, so will I and so will Dennis and maybe even Helmuth. So, just in case this actually happens, let me give my cheer now, before it is actually deserved, as a way of saying, “I think you can do the right thing.”